Thursday, March 31, 2011

Times Co.’s effort to turn online readers into paying subscribers is being watched by other newspaper companies struggling with a decline in traditional print advertising. The New York-based company is spending $40 million to $50 million on the project and has said it plans to debut it by March.

my biggest question right now is how the NY Times spent a reported $40-50 million writing the code (Bloomberg; other sources are consistent). Google was financed with $25 million. The New York Times already had a credit card processing system for selling home delivery. It already had a database management system for keeping track of Web site registrants. What did they spend the $40-50 million on? A monster database server to keep track of which readers downloaded how many articles? They should already have been tracking some of that for ad targeting. In any case, a rack of database servers shouldn’t cost $40 million.

"The project" is unlikely to equal "writing the code", even on a very expansive definition of "writing the code" to include all the project spec and design work. I would very strongly guess that a significant part of that $40m (if it's a hard figure; as far as I can tell the other sources are consistent because they're quoting Bloomberg, which doesn't attribute the number), was market research.

Market research can be very, very expensive, although as with education it's not so expensive when you compare it to the alternative of remaining ignorant. The lion's share of that budget would most likely have been spent on answering the question "Should we have a paywall?". Then "What kind of paywall?". I am not sure I agree with the answer they came up with, but for a largeish company making an unbelievably important decision about its flagship product, large spends on research would seem appropriate.

I am still having a hard time getting to $40m though. A very, very big market research project would be one with a budget of $5m; this would be an account that the entire industry competed for. You could then probably spend quite a bit more on strategy consulting - it's not difficult to run up a bill of $1m a month with McKinsey, and if we say they did twice that for six months, round the whole lot up ... I can see $20m for groundwork. Another c$5-10m for internal cost allocation of senior management time still leaves the actual coding to cost $10m, which is still about an order of magnitude more than it could reasonably cost to do the job. UpdateAlex thinks could indeed cost that order of magnitude to do the job, making the good point that Greenspun's cheep'n'cheerful paywall for MIT didn't exactly have to handle the volume of the New York Times (and nor did Google back in the days when it was doing things on a budget of $25m, which these days of course it is not). Tying in to the nuclear post above, making things bigger often makes them more complicated too.